Leases Flashcards
(20 cards)
Lease
A contract, or part of a contract that conveys the to use an asset for a period of time in exchange for a consideration
Lease asset must be identified
- Explicitly/implicitly identified
-Can be a portion, if it - Physically distinct
- Reflects substantially all the assets capacity.
-An asset is not identified if the supplier has a substantive right to substitute it.
Lease: Right to control the use
Obtain substantially all the benefits from the use of the asset
Direct the use the use of the asset
Lease recognition exemptions
- Optional & available to:
-Short term leases
-Low-value leases - Offer simpler approach that involves:
-expensing the lease - using straight-line basis
Lease term
The non-cancelable period for which a lessee has the right to use an underlying asset.
- Together with periods covered by:
- an option to extend the lease if the lessee is reasonably certain.
- An option to terminate the lease if the lessee is reasonably certain not to exercise that option
Fixed payments
Payments made by lessee to lessor for the right to use underlying asset during the lease term, excluding variable payments.
Variable lease payments
The portion of payments made by a lessee to a lessor, for the right to use an underlying asset during the lease term that varies because of changes in facts or circumstances the commencement date other than the passage of time.
Lease incentives
Payments made by lessor to lessee associated with a lease or reimbursement or assumption by lessor of costs of a lease.
Residual value guaranteed
A guarantee made to the lessor by a party unrelated to the lessor that the value of the underlying asset at the end of the lease will be at least a specified amount.
Lease payments calculated
- Fixed payments LESS lease incentives
- Variable payments
- Exercise price for a purchase option
- Penalties for a termination option
*Amounts expected to be payable in terms of residual value guaranteed.
Interest rate implicit in the lease
The of interest that causes the present value of the lease payments and the unguaranteed residual value to equal the sum of
1- The fair value of the underlying asset
2- Any initial direct cost of the lessor
Lessee’s incremental borrowing rate
The rate of interest the lessee would have to pay to borrow over a similar term, and with similar security, the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment.
Unguaranteed residual value
The portion of the residual value of the underlying asset, the realization of which by a lessor is not assured or guaranteed solely by a party related to the lessor.
Initial direct cost
Incremental cost of obtaining a lease that would not have been incurred if the lease had not been obtain except cost incurred by manufacturer
Simplified approach
Lease involves a low-value assets or is a short-term lease. Lease may be accounted for in terms of the recognition exemption.
* Cost recognized as an expense on a straight-line basis
General approach
A lease which is accounted for on the commencement date by recognizing on the
* Right of use asset
* Lease liability
Initial measurement of lease liability
Present value of lease payments that are still payable at commencement date, discounted using either the implicit interest rate or the lease’s incremental borrowing rate
Initial measurement of right-of-use asset
- Lease liability
- Initial direct cost
*Prepaid lease payments - Present value of estimated future costs
*LESS lease incentives received
Lease modification
A change in scope of a lease of the consideration for a lease that was not part of the original terms and conditions of the lease.
